Innovation and Growth: a survey of the empirical evidence

This paper surveys the empirical evidence on the link between innovation and economic growth in the light of New Growth Theory. It considers a number of different measures of innovation, such as R&D spending, patenting, and innovation counts, as well as the pervasive effect of technological spillovers between firms, industries, and countries. There are three main conclusions. The first is that innovation makes a significant contribution to growth. The second is that there are significant spillovers between countries, firms, and industries, and to a lesser extent from government-funded research. Third, that these spillovers tend to be localized, with foreign economies gaining significantly less from domestic innovation than other domestic firms. This suggests that although technological ‘catch-up’ may act to equalise productivity across countries, the process is likely to be slow and uncertain, and require substantial domestic innovative effort.